Mastering ICT Liquidity Void involves understanding how gaps in price action occur due to sudden and aggressive buying or selling by institutions.
These liquidity voids are significant because they often signal areas where price is likely to revisit in the future, offering traders potential trade setups based on smart money concepts.
Let’s dive into the details and break it down with examples.
1. What is a Liquidity Void in ICT?
A Liquidity Void refers to a sharp, one-sided move in the market where price gaps over multiple price levels without any retracements.
This often happens when there is an aggressive imbalance between buyers and sellers, typically due to institutional traders pushing price in one direction very quickly.
In these areas, the market didn’t have sufficient two-way price action (buying and selling), which creates a “void” in liquidity.
1. Key Characteristics:
- Sharp, Fast Moves: Liquidity voids occur when the price moves rapidly in one direction, often leaving behind a gap or large candlesticks with minimal wicks.
- No Retracement: The market doesn’t offer significant retracements during these moves, indicating a lack of liquidity at those price levels.
- Price Rebalancing: The market has a tendency to eventually return to these areas to fill in the gaps, as institutions seek to rebalance price at fair value.
2. Why Do Liquidity Voids Matter in ICT?
Liquidity voids are important because they show areas of market imbalance where price is likely to revisit.
This means traders can use liquidity voids to predict future price movements, especially in alignment with other ICT strategies like Order Blocks, Fair Value Gaps (FVGs), and Break of Structure (BOS).
1. Institutional Motivation:
Liquidity voids are often caused by institutional traders executing large orders quickly, which can create inefficiencies in the market.
Over time, smart money aims to revisit these areas to fill those voids, balancing the market and fulfilling liquidity needs.
3. Identifying Liquidity Voids in ICT: A Step-by-Step Process
1. Look for Large Candles Without Retracements
The first sign of a liquidity void is when price prints a series of large candlesticks that move in one direction with little to no wicks.
These candles represent strong momentum driven by institutional traders.
2. No Retests During the Move
A true liquidity void will show a lack of price retests or retracements during the initial move.
For example, if price moves sharply downward over 50 pips without pulling back to previous levels, it creates a void in the market.
3. Wait for Price to Revisit the Void
Once a liquidity void has been created, ICT traders look for opportunities when price revisits the void area.
The idea is that smart money will seek to rebalance price by filling the gaps left behind in the void.
4. Example of Liquidity Void in ICT
Scenario 1: Liquidity Void in a Downtrend (EUR/USD)
Imagine the EUR/USD pair is in a strong downtrend. Suddenly, a news release causes the price to drop 100 pips in a matter of minutes.
This rapid drop forms a liquidity void, as there’s no significant buying activity in between the levels.
- Initial Move: Price crashes from 1.1050 to 1.0950 in a short time, creating a large gap with no retracement. This is a clear liquidity void.
- Future Retest: Over the next few days, the price slowly retraces back up to the 1.1000 level, filling part of the void. ICT traders would look for shorting opportunities when price re-enters the void, as this indicates smart money is rebalancing price.
Scenario 2: Liquidity Void in an Uptrend (GBP/USD)
Let’s consider the GBP/USD pair.
During the New York Open, price spikes upwards by 80 pips in just a few minutes.
This fast upward move leaves a liquidity void between 1.3050 and 1.3130.
- Initial Move: A bullish institutional order block pushes price upward, leaving a liquidity void in its wake.
- Rebalancing: Over the next trading session, price retraces into the void, balancing price as it revisits the 1.3080 level, where traders can look for a long entry, anticipating another bullish move.
5. How to Trade Liquidity Voids in ICT
1. Identify a Clear Liquidity Void
The first step is to spot a sharp price move that leaves behind a liquidity void.
Look for large, one-sided candles on higher timeframes (like H1 or H4) without much retracement.
2. Align with Market Structure
Next, check if the liquidity void aligns with the current market structure.
For example, if the market is in a downtrend and a liquidity void forms after a major down move, you’ll want to trade in the direction of the trend.
3. Wait for Price to Rebalance
Once the void is identified, wait for price to re-enter the void area.
When this happens, you can look for trade entries based on other ICT strategies, such as:
- Order Blocks: If an order block aligns with the liquidity void area, it can serve as a high-probability trade entry.
- Fair Value Gaps (FVGs): Price often retraces to fill in fair value gaps within the liquidity void, presenting additional entry opportunities.
- Break of Structure (BOS): Look for a BOS in the direction of the void when price re-enters, confirming the trade.
4. Set Tight Risk Management
Liquidity voids are powerful, but price can sometimes retrace deeper into the void than expected.
Always set your stop-loss above or below the void area, depending on the direction of your trade, to manage risk effectively.
6. Practical Example Trade Setup: Liquidity Void in EUR/USD
- Identification: On the H4 timeframe, the EUR/USD pair drops 150 pips rapidly, creating a liquidity void between 1.1200 and 1.1050.
- Market Structure: The pair is in a strong downtrend, so you plan to trade in the direction of the trend.
- Price Retrace: A few days later, price retraces into the liquidity void, approaching the 1.1100 level.
- Entry: You place a short position when price re-enters the void and approaches a key bearish order block.
- Stop-Loss: Set your stop-loss slightly above the 1.1150 level to protect your trade.
- Target: Aim for price to drop back to the bottom of the void, around 1.1050.
7. Conclusion
Mastering Liquidity Voids in ICT involves recognizing large, fast price movements created by institutional activity and understanding that price often returns to these areas to rebalance.
By using liquidity voids in conjunction with other ICT concepts such as Order Blocks and Fair Value Gaps, traders can increase the accuracy of their entries and improve their overall trading strategy.
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